U.S. inflation tame, but medical costs and rents pushing up

WASHINGTON Tue Sep 17, 2013 12:59pm EDT

Customers shop at a Walmart Supercenter in Rogers, Arkansas June 6, 2013. REUTERS/Rick Wilking

Customers shop at a Walmart Supercenter in Rogers, Arkansas June 6, 2013.

Credit: Reuters/Rick Wilking

WASHINGTON (Reuters) - U.S. consumer prices barely rose in August, but rising rents and medical care costs pointed to some stability in underlying inflation that could make the Federal Reserve more comfortable trimming its bond purchases.

The Labor Department report on Tuesday showed inflation largely under wraps, but some details suggested a down drift in prices earlier in the year had probably run its course.

"This should give policymakers greater confidence that the inflation soft patch in the first half was indeed transitory," said Joseph LaVorgna, chief economist at Deutsche Bank Securities in New York. "As a result, some fence-sitting participants may feel marginally more comfortable proceeding with a mini-taper of quantitative easing."

Fed officials were set to meet on Tuesday and Wednesday to deliberate on monetary policy. Most economists expect the U.S. central bank to announce a scaling back of the $85 billion in bonds it has been buying each month at the end of the meeting.

The Labor Department said its Consumer Price Index edged up 0.1 percent last month as the cost of energy fell and food prices remained muted. The CPI had risen 0.2 percent in July. In the 12 months through August, it increased at a slow 1.5 percent pace after advancing 2.0 percent in the 12 months through July.

Stripping out the volatile energy and food components, the so-called core CPI rose 0.1 percent after increasing by 0.2 percent in each of the past three months. Rents and medical care accounted for most of the increase in the core CPI.

The latest gain took the increase in the core index over the past 12 months to 1.8 percent, the largest rise since March. The core CPI had gained 1.7 percent in July.

Earlier in the year core inflation was moving lower, and reached levels that caused unease among some Fed officials. It touched a two-year low of 1.6 percent in June, but has been inching up for the last two months.

LOW INFLATION TEMPORARY?

The Fed targets 2 percent inflation, although it tracks a gauge that tends to run a bit below the CPI. Fed Chairman Ben Bernanke has viewed the low inflation as temporary and expects prices to push higher as the economy strengthens.

The inflation data supported prices for long-dated U.S. government bond prices. The dollar was marginally lower against a basket of currencies, while U.S. stocks were trading higher.

Interest rates have risen over the past few months in anticipation of the Fed's taper announcement. There is little sign, however, that high mortgage rates are putting a damper on home building.

A separate report showed confidence among homebuilders unchanged near eight-year highs in September.

Last month, inflation was held back by a 0.3 percent drop in energy as the cost of gasoline, electricity and natural gas fell. Energy prices had increased 0.2 percent in July. Food prices gained 0.1 percent, rising by the same margin for a second straight month.

Away from food and energy, there were pockets of pricing power, with housing and medical care costs advancing.

There were gains in rent, which accounts for about a third of the core CPI. Owners' equivalent rent of primary residence posted its largest gain since November 2008.

Demand of rental housing has been rising as Americans shift away from owning a home. Rising mortgage rates could ensure that trend remains entrenched for a while.

Medical care costs rose 0.6 percent, the largest increase since July 2007. Prescription drugs also recorded their biggest rise since July 2007. Medical care, which makes up more than 9 percent of the core, has been one of the key contributors to the low inflation early in the year.

"What consumers are saving on gas they are paying for in medical care and rent," said Jay Morelock, an economist at FTN Financial in New York. "Even with consumer prices in check, however, the year-over-year increase in rents will support the case for tapering."

On a year-on-year basis, rent of shelter posted its largest rise in five years.

But some economists do not think core prices will continue pushing higher, arguing that the so-called cyclical components of inflation remained subdued. These are tied more closely to the economy's performance and include new and used motor vehicles, hotel room rates, airfare and apparel.

All either declined or were nearly unchanged in August.

"It is hard to imagine that rent will be rising at such a rapid clip in the coming months. Taking all that into account, the picture for the core rate suggests subdued readings ahead," said Omair Sharif, an economist at RBS in Stamford, Connecticut.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (6)
AdamSmith wrote:
Immigration is destroying the American middle class.

Nature has not yet rescinded the law of supply and demand.

The plain fact is that immigration into any modern country has two serious, lethal effects on the native-born citizens:

1. Immigration sharply drives down wage rates.
2. Immigration sharply drives up housing costs (rent rates).

Thus employers and landlords benefit from immigration.

Thus common workers are greatly harmed by immigration.

Today in America, apartment rental rates are skyrocketing. I’ve lived in the same apartment building about 8 years. When I moved in it was mostly regular Americans, born here. Very few foreigners. There were always a few vacancies. Rents were stable.

I’ve watched it change. Today it is about 60 percent foreign-born people. There are no vacancies. There is now a waiting list to move in. More and more foreigners every day.

The rental rates go up, and up and up. The large company that owns it greatly benefits from immigration, and of course gives great political support for further immigration.

But the native-born Americans, working class, already in financial straits, see their rents go up and up and up. Often they go from an apartment to being homeless.

The immigrants, coming from poverty, squalor and violent crime in Latin America, end up causing the native-born American working class to fall into squalor and destitution in America.

Immigration is a giant crime against the American working class, while the wealthy reap more profits. That’s why the big immigration push now in congress. Big money is behind it.

Immigration is destroying the American middle class.

Sep 17, 2013 10:23am EDT  --  Report as abuse
jrj906202 wrote:
So much nonsense.My uncle,who told me years ago,that the U.S. is a nation of salesmen.How long,salesmen,who run the country,can continue to lie,and get away with it,is the question.Even foreigners,buy this nonsense.Anyone,who pays attention to prices paid and product downsizing,should be aware that inflation is still going strong.

Sep 17, 2013 11:13am EDT  --  Report as abuse
B.S U.S. businesses are gouging consumers big time they keep raising prices far more than the government is willing to admit when I moved into my 3 bedroom apartment in North Raleigh, NC it was a good deal at 609 dollars per month plus utilities 4 and a half years later I am paying 853 dollars per month plus utilities, my electric bill in this apartment 4 and a half years ago was a little over 120 a month on the average now is slightly over 200 dollars per month on the average, the very same type of used car that 5 years ago cost me 3000 dollars is now close to 10000 dollars, 5 years ago I could feed my family of 5 for about 120 a week now I can not leave the grocery store for less than 200 dollars per week, clothing and school supplies are equally ridiculous and yet the government has the audacity to comment that inflation of our economy has only risen 1.7 % one year the year before that they claimed 0 inflation and I think this year our mathematical wizards in washington are claiming an inflation rate of just 1.3 % simple math escapes this countries leaders no wonder we keep getting our buts kicked by a bunch of cave dwellers…

Sep 17, 2013 11:35am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Recommended Newsletters

Reuters U.S. Top News
A quick-fix on the day's news published with Reuters videos and award-winning news photography and delivered at your choice of one of four times during the day.
Reuters Deals Today
The latest Reuters articles on M&A, IPOs, private equity, hedge funds and regulatory updates delivered to your inbox each day.
Reuters Technology Report
Your daily briefing on the latest tech developments from around the world from Reuters expert tech correspondents.